Curve Booster
Curve Booster is a direct subtype of Financial
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TYPE INCLUSION RELATIONSHIPS
AVAILABLE FUNCTIONS
AVAILABLE CREATE FUNCTION KEYS
TYPICAL OBJECTS OF TYPE Curve Booster
This type represents a set of specifications that define how the building of a Yield Curve can be boosted, i.e. accelerated, so that DV01s and other risks can be calculated very fast as the market quotes keep changing.
Note the current implementation is still in testing phase and should be used in production only if sufficient tests have established its intended functionality!
Such tests may involve the function Check Accuracy, which runs a check for a list of supplied dates and returns a report of the accuracy of the boost approximation.
When the boost facility is active, the curve is constructed using bootstrapping only when it is first created and the then market quotes are stored for later reference.
Afterward, as the market quotes keep changing, the new market quotes are compared against the stored initial quotes and the internal quantities on the peg nodes that effectively define the curve are computed using approximation techniques.
If the new market quotes do not deviate substantially from the initial quotes, the thus produced approximated curve can be very close to the exact curve, i.e. the one that would have resulted by regular bootstrapping.
The quality of the approximation depends on the gap size between the new and initial market quotes, but also on the type of the employed approximation algorithm.
The latter can rely either only on the deltas (first derivatives) or on both the deltas and gammas (second derivatives), as described at Use Gamma
The delta-only approximation is very fast, but gives satisfactory results for trading purposes (i.e. implied zero and forward rates within 0.1 bps) only when the gap size does not exceed 2 or 3 basis points.
The delta+gamma approximation is much slower, but gives excellent results even when the gap is much larger than 5 basis points.
This type of trade off leads to a general recommendation in the favor of the delta+gamma approximation.
If the biggest gap between current and stored market quotes exceeds a certain value specified in the entry Boost Margin, the curve is automatically reset to the new quotes by kicking off a regular bootstrapping and recalculating the requiredc derivatives off the new market quote levels.
The current biggest gap is reported through the key Max_Quote_Move of the affected curve.
The user may avoid the surprise of the automatic curve reset by forcing a manual reset before the reported biggest gap exceeds the defined margin.
A manual reset can be simply accomplished by rebuilding the curve after setting Active to TRUE